Monday, November 7, 2016

Yes nick you are a thistle head

"There is a very big problem with the New Keynesian Macro model. It simply assumes, with zero justification for this additional (hidden) assumption, that agents in the model expect an automatic tendency towards full employment. ..,,,,precisely this question that Keynes wrote the General Theory to address."Just for fun Here's a Rowe logic toy of recent devising Motto:" Simplify massively, to clear the decks of anything that is not required for me to make my points." Model:" Large number of identical infinitely-lived self-employed agents who produce and consume haircuts (the only good). So wages and prices are the same thing, and output, consumption, and employment are the same thing. All agents set the same price (which may be sticky or flexible). The central banks sets a rate of interest (somehow, and this is a question that must and will be answered)."" To make it even simpler, assume the central bank indexes the nominal interest rate to the inflation rate, so it sets a real rate of interest. No shocks, nothing fundamental ever changes, and full employment equilibrium is 100 per period."